EMERGING MARKETS-EMEA FX set for bumper week on stimulus hopes, Lira outperforms

PUBLISHED: Fri, 05 Feb 2021 09:37:49 GMT

* Lira hits a six-month high

* Czech crown is the best weekly CEE performer

* MSCI EM stocks index up 4.7% this week

* High oil prices keep rouble positive

By Ambar Warrick

Feb 5 (Reuters) – Emerging market currencies rose on Friday and were set for a solid week on optimism over more U.S. stimulus, while the lira outpaced its European peers to hit a new 2021 high due to expectations of tight monetary policy.

The lira firmed 0.7% and was set to add 3.3% for the week, its best since mid-November. The head of the country’s central bank Naci Agbal told Reuters he does not expect to begin considering cutting interest rates from 17% until much later this year, and that rate hikes are still a possibility.

A higher-than-expected January inflation figure reported earlier this week had also raised expectations of continued hawkishness.

Most other currencies in Europe, the Middle East and Africa strengthened, with Russia’s rouble gaining 0.4% as oil prices spiked to a one-year high.

Higher crude prices helped the rouble overcome concerns over the possibility of new western sanctions against Moscow, after the jailing of a prominent Kremlin critic.

Still, the currency was set to lag most of its regional peers for the week.

EM stocks rose on Friday, with the MSCI’s index adding about 0.3%. It was set to rise nearly 5% this week, as strength in Wall Street and expectations of a $1.9 trillion U.S. stimulus package fed risk appetite.

BoFA’s flow data showed EM debt saw its fourth-largest inflows ever last week at $3.7 billion, while EM stocks attracted inflows of $5.7 billion.

EMEA currencies logged large gains against the euro this week, as the unit was hurt by a sluggish vaccine rollout and signs that an economic recovery in the region was faltering. The dollar, meanwhile, marked large gains on optimism over the U.S. economy despite the currency’s status as a safe-haven.

“As the difficulties in the EU are unlikely to evaporate into thin air any time soon whereas a further stimulus package of some description will make it through the U.S. Congress, the dollar is likely to maintain the upper hand for now,” Esther Reichelt, FX and EM analyst at Commerzbank wrote in a note.

Among Central European currencies, the Czech crown outpaced its peers this week, after the Czech central bank indicated it could begin hiking rates this year on a stronger-than-expected economic bounceback.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Ambar Warrick in Bengaluru; editing by Uttaresh.V)

(c) Copyright Thomson Reuters 2021. Click For Restrictions – https://agency.reuters.com/en/copyright.html

Sign Up for Our Newsletter Daily Update
Get the best of CNBC Africa sent straight to your inbox with breaking business news, insights and updates from experts across the continent.
Get this delivered to your inbox, and more info about about our products and services. By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.